Aberdeen Emerging Markets announce positive news and developments

Aberdeen Emerging Markets announce positive news and developments – Aberdeen Emerging Markets Investment Company Limited (“AEMC”) has delivered its annual report and accounts to year ending 31st October 2017.

In it they reported performance for the 12 month period, as well as some significant changes.

Over the year to 31 October 2017, the company’s NAV total return was 14.9% and the share price total return was 17.0% (all in Sterling terms). Over the same period the company’s benchmark, the MSCI Emerging Markets Net Total Return Index (in Sterling terms), recorded a total return of 16.6%. The share price total return was 17.0%, with the discount to NAV at which the company’s shares trade narrowing to 10.4% at year end, compared with 11.9% at the start of the financial year.

The board announced various developments that are intended to close the discount to NAV.  These include:

  • Introduction of a dividend policy
  • Use of gearing through the introduction of a £25 million credit facility
  • Reduction in the rate of the basic management fee to 0.7% from 0.8% (effective 1/11/2017)
  • Removal of performance fee arrangements (effective 1/11/2017)
  • Use of share buyback powers in accordance with the company’s stated discount management policy
  • Participation in the Aberdeen investment plans and promotional programme 

The company’s NAV return underperformed the benchmark Index by 1.7%. The investment manager reported that the benchmark return over the year significant benefited from a small number of large e-commerce, social networking and technology companies. AEMC was underweight relative to the benchmark through its holdings of investment companies as a result of its fund of fund structure. For example, in China, Tencent and Alibaba comprise 32% of the MSCI China Index and were responsible for 46.3% of the overall index gain, while in Korea and Taiwan, Samsung Electronics and Taiwan Semiconductor comprise 34% and 32% respectively of the relevant MSCI indices and contributed 57.1% and 57.4% of the index gains. The investment manager’s strategy of investing in the shared of other emerging markets funds results in a diversified portfolio that avoids the kind of stock specific risks presented by concentrated indices.

A negative contribution from asset allocation was driven by an underweight exposure to China, where those same internet related stocks drove the overall market returns. China now accounts for 29.7% of the emerging market index and was the best performing of the major emerging markets over the course of the financial year, gaining 30.0%. The company’s overweight position in Russia was also a detractor. Positive contributions came from the decisions to run underweight allocations to Brazil, South Africa and Qatar.

Tender offer

AEMC’s Board has also announced proposals for a tender offer for up to 10% of the company’s ordinary shares in issue. This will be at a price reflecting a discount of 3.5% to NAV. The board says that shares tendered above the basic entitlement of 10% will be satisfied (on a pro rata basis) to the extent that other shareholders tender less than their aggregate basic entitlement and, assuming the tender is fully subscribed, the costs are anticipated to be more than offset by the uplift in NAV once the relevant shares have been purchased by the Company. The record date for participation in the tender will be 20 February 2018 and the Company expects to publish a circular containing the notice of the Annual General Meeting and the notice of the Extraordinary General Meeting required to approve the tender offer in the coming weeks. The resolution to approve the tender will also be conditional on the approval by shareholders of the Continuation Resolution.

AEMC : Aberdeen Emerging Markets announce positive news and developments

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